Experts said that Greencore had its work cut out to consolidate its position due to the size of the market, but stressed that the firm was now on a “sound footing” to further develop its business in the US.
Julian Wild, food group director at law firm Rollits, told FoodManufacture.co.uk that Greencore had “had its eye” on the US market for some time.
He said: “I would say it’s a tough strategy to deliver and plenty of UK companies have tried their luck in US convenience foods and not had much success. It will be interesting to see if Greencore can pull it off.
Modest acquisitions
“The firm has made relatively modest acquisitions, though, in relation to the size of its core business, so I think it has a long way to go yet.”
Wild warned that the US convenience food market differed greatly from its UK equivalent. He highlighted the difference in shelf-life that convenience products receive.
“It is a very different scene over there and the vast geography also dictates that you can really only hope to do it regionally,” he added.
His thoughts were echoed by Liam Igoe, analyst at Goodbody stockbrokers. He told FoodManufacture.co.uk that, despite the acquisition, Greencore was still a small player across the Atlantic.
He said: “It has been expanding in the US for a while now, both organically and through acquisitions in the US convenience sector, particularly in the food-to-go category.
“I think this will be seen as a deal in its own right and a way of putting the US business on a sound footing in a very large market. Whatever happens to the business in the long run, it certainly makes sense to increase profitability in the US as it currently has very small margins.”
£22M deal
Greencore announced yesterday that it had snapped up Marketfare in a £22M ($36M) deal as it seeks to expand its convenience and small store offering in the US.
Marketfare’s main customer is 7-Eleven, which it has partnered for more than 20 years. It is currently the largest single supplier of Fresh-to-Go and 7-Smart store-branded sandwiches, servicing over 1,100 7-Eleven stores in the Mid-Atlantic region.
Distribution channels also include convenience outlets, vending machines, clubs, shopping centres, grocery, mass drug stores and $1 shops.
The deal follows Greencore’s acquisition of US food-to-go firm On a Roll in December 2010.
Greencore chief financial officer, Alan Williams said that the firm was now looking to capitalise further on some US retailers looking to replace dwindling tobacco revenues with fresh food sales.
He told FoodManufacture.co.uk: “We are looking to significantly expand our convenience and small store offering in the US with 7-Eleven. It is very much a US specific project as we already have a very strong presence in the equivalent UK sector.
“We are very committed to our US business and what we have learned over the four years is that, compared with the UK, chilled foods is very underdeveloped in the US, so this is about trying to develop that area of our business.”
Marketfare reported revenues of £40.9M ($65M) for the year ended January 27 2012, with earnings before interest, taxes, depreciation, and amortisation of £3.6M ($5.7M).
Greencore said it expected to fund the acquisition from existing debt facilities and is expected to complete the deal on April 18.
Greencore at a glance:
- December 2010 – Snaps up US firm On a Roll.
- Autumn 2011 – Acquires UK chilled foods business Uniq in £113M deal.
- November 2011 – Attracts interest from mystery suitor, rumoured to be a private equity firm.
- December 2011 – Announces UK listing in a bid to raise investor interest
- January 2012 – Ends courtship with mystery suitor
- March 2012 – Sees share price soar after acceptance onto FTSE Index